Stocks can be a wonderful way to build wealth over time. Despite those long-term prospects, a key challenge that stock investors face is that market returns are never guaranteed. Indeed, in the worst-case scenario, a stock can go bankrupt, leaving its investors in a lurch with nothing. Retirees living off their portfolios are particularly exposed to those risks, as it may be hard for them to replace money lost from such a scenario.
Still, for those anticipating a long retirement, some stock exposure might be needed to give those retirees a chance to keep their purchasing power whole after inflation. With that in mind, three Motley Fool contributors went searching for stocks that could play a role in a retiree's portfolio. They picked Walt Disney (DIS 0.01%), Bank of America (BAC 0.28%), and Kinder Morgan (KMI -1.77%). Read on to find out why, and then decide for yourself whether any of these companies deserves a spot in your portfolio during your retirement.
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The Mouse will roar again
Eric Volkman (Walt Disney): An ideal retirement investment play is a relatively inexpensive stock that underpins an unbeatable set of top-quality assets. Another nice feature would be a recent history of generous dividend payments.
Say hello to a familiar name, then -- Walt Disney.
These days, Disney is far and away the top entertainment company on the scene. It has an overpowering presence in no fewer than four segments of the industry -- film, TV, streaming video, and theme parks. If you've watched TV or taken the kids to the multiplex even occasionally of late, it's more than possible you've been consuming Disney content.
A commanding presence does not, however, guarantee runaway success.
The pandemic hit the company's parks and resorts business extremely hard, and the recovery has been painful. It also spent heavily to push its streaming service Disney+ and while the platform has attracted scores of users, it's been a drain on the finances -- the direct-to-consumer company segment it's part of booked a steep loss of over $4 billion in fiscal 2022.
Consequently, free cash flow (FCF), once a swiftly flowing river powering Disney's attractive dividend, thinned to the point where the company suspended the payout.
But 2023 is set to be a rebound year. Bob Iger, who served as CEO during the company's glory years earlier this millennium and returned to the post in late 2022, has prioritized cutting the losses at Disney+. Attendance at the theme parks is strong, and the company's movies have done well at the box office.
Layoffs are being enacted in various departments and while no one loves such moves, they should help boost profitability and restore that once-mighty free cash flow. The company aims to reinstate that dividend, albeit at modest rates initially, by the end of this year.
So sooner rather than later, investors should see the return of the pre-pandemic Disney, complete with a thriving set of businesses, high free cash flow, and a generous dividend. The ideal combination, in other words, for a top retirement stock.
Something in your wallet and something in the bank
Jason Hall (Bank of America): A stock you can own in retirement needs to be able to both help people reach today's financial goals and provide for long-term needs. In other words, the ideal "own-in-retirement" stock for me would pay a sizable -- dependable -- dividend, have the capacity to grow it over time, and be a business that's still growing at a measured clip so that if I needed to sell it to cover expenses in, say another decade, I could reasonably expect it to be worth more money.
I think Bank of America fits that bill nicely. It showed its strength in the first quarter, reporting double-digit earnings growth, and a modest decline in deposits of less than 2% as people spend down their pandemic-padded savings balances. In other words, in the face of the first banking panic in more than a decade, it proved resilient. While other banks are circling the wagons, BofA is positioned to opportunistically grow. Over the past 10 years, it has been a nice winner, with 10.6% in annualized total returns, even with the stock down over the past year on worries about a recession affecting banks, and the collapse of several regional banks sending most bank stocks lower.
This winner is very attractively priced, trading for 90% of book value and less than 9 times last year's earnings. The decline in the stock price has pushed the dividend yield above 3%, and investors can reasonably expect that dividend to grow in the mid-single digits going forward. This may be no rocket stock, but it's ideal to own in retirement.
Someone has to move energy from where it's produced to where it's consumed
Chuck Saletta (Kinder Morgan): Love them or hate them, oil and natural gas will be with us for a long time to come. According to the U.S. Energy Information Agency, even under the most optimistic scenarios for greener energy solutions, oil and natural gas demand will be about the same in 2050 as it was in 2022.
A key thing to remember about those forms of energy is that they generally need to be transported from where they're produced to where they're refined and/or consumed. That's where Kinder Morgan comes into the picture. One of the largest energy infrastructure companies in North America, Kinder Morgan owns and/or operates around 82,000 miles of pipelines that crisscross the continent. That makes it a key player in the business of getting those sources of energy where they need to go.
Pipelines tend to be among the safest, most cost effective, and most environmentally friendly ways to move those types of energy around. That makes it likely that pipeline demand will remain strong as long as oil and gas demand remains strong.
All that said, if oil and natural gas demand remains steady, it is not likely that pipeline companies like Kinder Morgan will see extraordinary growth. Still, it does provide a good reason to believe that the company will see solid cash flows for a good, long time to come. That cash flow can support its dividend, which currently offers around a 6.4% yield. And while long-term growth prospects look tough to come by, its most recent dividend announcement did hand investors a slight increase.
It's rare for a company to offer investors both a high current income and a strong reason to believe that income could continue for decades to come. Because of where and how it operates, Kinder Morgan may be one of the few that could make that a reality. That makes it a stock to potentially consider holding well into retirement.
No matter where you are in your journey, your retirement awaits you
For most of people, retirement will likely be their largest financial goal. That makes it important to start planning and saving for it as early as is feasible. So no matter where you are in your journey, make today the day you consider whether Walt Disney, Bank of America, or Kinder Morgan may very well play a role getting you to -- and through -- your retirement. If you get started now, you just might find that smart investing can help make your golden years that much more golden.
